Financial Services analysis: With the Solvency II framework coming into force across Europe in January 2016, Michael Wainwright, partner at Dentons, considers the latest guidelines for the insurance and occupational pensions sectors.
EIOPA issues second set of Solvency II guidelines, LNB News 15/09/2015 105
European Insurance and Occupational Pensions Authority's (EIOPA's) second set of guidelines for Solvency II cover areas in quantitative requirements, governance, and reporting and disclosure. The guidelines are in force from 1 January 2016, following which National Competent Authorities have two months from the date of issuance to indicate whether they do or will comply.
What is the background to the publication of the guidelines?
EIOPA is the lead European supervisory authority for insurance and occupational pensions. It has responsibility for co-ordinating the activities of national supervisors in each EU Member State.
The guidelines are addressed by EIOPA to national supervisors. Most will be of interest and many of direct relevance to insurers. They provide guidance as to how the EU legislation is to be interpreted and how new regulatory processes should be implemented. Each set of guidelines addresses a chosen theme in terms of high level principles. As such, the guidelines contrast with other measures and guidance issued by the Commission and EIOPA in the form of technical standards and Q&As. Much of this is technical and piecemeal in nature--for example, how to complete a particular question on a particular regulatory return.
What are the main points in the nine new sets of guidelines?
The nine new sets of guidelines join 19 existing guidelines and cover:
- financial stability reporting
- extension of the recovery period
- exchange of information within colleges
- implementation of the long-term guarantee measures
- methods for determining the market shares for reporting
- reporting and public disclosure
- recognition and valuation of assets and liabilities other than technical provisions
- system of governance
- own risk and solvency assessment (ORSA)
As can be seen from the above list, the guidelines are not organised into a hierarchical structure or sequence. Some are primarily relevant to supervisors--for example, exchange of information within supervisory colleges--and some are just as relevant to insurers--for example, reporting and public disclosure. There is a mix of guidelines on specific issues and on general themes, such as ORSA.
In many cases, the guidelines are fairly basic at present, but they are likely to be amplified over time to form a body of commentary on the underlying Solvency II legislation (Directive 2009/138/EC). They can be readily updated and supplemented, in a way that the legislation cannot.
What actions should firms take as a result of the guidelines?
Insurers will need to keep track of new guidelines as they are issued and updated. Each set of guidelines will need to be brought to the attention of relevant members of staff. In-house compliance policies and processes, as well as specific outputs such as regulatory returns, will need to be assessed in the light of the guidelines that relate to them.
As the sets of guidelines increase in number, the lack of an organised hierarchy will make it more difficult to identify relevant material and to control for conflicts and inconsistencies.
What advice should lawyers be giving to their clients?
Although the guidelines are relatively informal, for practical purposes they are part of the regulatory framework. Even where they go beyond the specific requirements of the legislation, they will need to be taken into account as a statement of regulatory expectations. EIOPA does not have power to amend or override the legislation by issuing guidelines, but in practice it may be difficult to draw the line between material that supplements and material that actually conflicts with the legislation, so that it is invalid.
There is a risk that, once the guidelines have been in operation for some time, the status of acts or omissions in breach of the guidelines may give rise to uncertainty, particularly with regard to the rights of third parties. For the time being, however, the position is likely to depend on whether the guidelines have been implemented by national legislation and whether that national legislation has been complied with.
This article first appeared in the October 2015 edition of LexisPSL. Written by Michael Wainwright in Dentons' London office.